The Rise of USD1 and the GENIUS Act: The Trump Administration Reshapes the Stablecoin Market Landscape

Preface

Since the collapse of TerraUSD (UST) in 2022, the market share of algorithmic stablecoins has continued to decline. UST, as an algorithmic stablecoin, is not backed by any fiat currency or asset, relying solely on algorithms to maintain its peg to the US dollar. Once confidence collapses and the mechanism fails, the market can experience a chain reaction. In contrast, fiat-backed stablecoins (such as USDT, USDC, USD1) that use highly liquid assets like US dollars and US Treasury bonds as reserves have gradually become the market mainstream. However, even these stablecoins are still under scrutiny regarding their compliance and transparency. In response to this challenge, the United States has recently accelerated the advancement of the GENIUS Act, aiming to establish a comprehensive regulatory framework for the stablecoin market.

I. GENIUS Stablecoin Act

Importance of the GENIUS Act to the Crypto Market

The core of the GENIUS Act includes key elements such as issuance qualification restrictions, reserve requirements, compliance obligations, user protection, and international applicability. The act clearly stipulates that issuing institutions must fully back their issued stablecoins with equivalent high-liquid assets to ensure users can redeem at any time. Additionally, to protect the interests of token holders, if the issuing institution goes bankrupt, its assets should be prioritized for repaying user funds. Furthermore, issuers must strictly comply with anti-money laundering (AML) and counter-terrorism financing (CFT) obligations to prevent stablecoins from being used for illegal purposes. Overall, the GENIUS Act can strengthen the regulation of stablecoins and protect user rights; however, in the short term, the act raises the threshold for stablecoin issuers, requiring existing issuers to change their asset reserve structures and information disclosure mechanisms, which may incur high costs and operational difficulties.

Core Provisions of the Act

1. Licensing and Regulatory Framework
   The act stipulates that only three types of entities are allowed to issue payment stablecoins: first, subsidiaries of banks or credit unions; second, non-bank financial institutions approved by federal regulators (such as those regulated by the OCC); third, state-level issuers that have obtained state licenses and meet federal "substantially equivalent" standards. The regulation adopts a "dual system": issuers with a market capitalization exceeding $10 billion must accept federal regulation; smaller issuers can be regulated by the state but must meet federal basic requirements.

2. Reserve and Asset Segregation Requirements
   All stablecoins must implement 100% reserve support and can only use high-liquid assets, such as cash, demand deposits, short-term US Treasury bonds (≤93 days), short-term repurchase agreements (≤7 days, subject to central bank regulation), and central bank reserves. Customer assets must be strictly segregated from operating funds, prohibited from re-pledging, and can only be temporarily pledged for short-term liquidity purposes.

3. Transparency, Auditing, and Accountability Mechanisms
   Issuers must disclose the composition of reserve assets monthly and undergo audits by registered accounting firms. For issuers with a market capitalization exceeding $50 billion, auditing and compliance requirements are stricter. The CEO and CFO of the issuing institution must sign monthly compliance certifications, and false statements will incur criminal liability. Regulatory agencies will also establish standards for capital, liquidity, and risk management.

4. Anti-Money Laundering and National Security Compliance
   Stablecoin issuers are regarded as financial institutions under the Bank Secrecy Act and must establish AML and sanctions compliance systems, including transaction monitoring, risk assessment, and suspicious activity reporting. Issuers must also retain transaction records for regulatory review.

5. Restrictions on Foreign Issuers and Large Tech Companies
   Foreign stablecoin issuers that do not comply with US equivalent regulatory standards will be prohibited from providing services in the US. Large tech companies (such as Meta and Amazon) that engage in stablecoin issuance must meet strict financial compliance, user privacy, and fair competition requirements to prevent monopolistic and systemic risks.

6. Consumer Protection and Bankruptcy Priority
   Stablecoin users have priority repayment rights in the event of the issuing institution's bankruptcy. To prevent conflicts of interest, the act prohibits members of Congress and senior executive officials from participating in stablecoin issuance during their terms.

7. Legal Classification and Regulatory Boundaries Clarified
   The act clearly states that payment stablecoins do not fall under the category of securities or commodities, thereby excluding the regulatory authority of the SEC and CFTC, defining the legal boundaries of stablecoins and avoiding overlapping regulation.

Progress of the Act

As of May 22, the stablecoin GENIUS Act passed the debate motion with 69 votes in favor and 31 against, entering the amendment process. With the rapid advancement of stablecoin legislation in both the House and Senate, a rare bipartisan consensus has been reached on the regulation of crypto assets, and the act is expected to complete the legislative process by Q4 2024.

II. Introduction to USD1

Background of USD1

USD1 is a US dollar stablecoin launched in March 2025 by World Liberty Financial Inc. (WLFI), a DeFi platform controlled by members of former President Trump's family. The goal is to peg each USD1 to the US dollar at a 1:1 ratio, fully backed by US short-term Treasury bonds, dollar deposits, and cash equivalents. The project emphasizes compliance and transparency, with reserve assets audited regularly by a third-party accounting firm and custodied by digital asset custodian giant BitGo. Zach Witkoff, one of the co-founders of WLFI, and Eric Trump, son of Trump, are key figures in the project, with the latter also serving as the head of WLFI.

Current Status of USD1

Recently, with BTC prices breaking historical highs and the rising popularity of USD1, its ecological cooperation projects have also gained market attention. The prices of tokens from multiple partners, including Buildon, Lista DAO, StakeStone, Haedal, and Cookie, have surged significantly, driving market enthusiasm for the "WLFI+USD1" concept. As of mid-May 2025, the market capitalization of the USD1 stablecoin has exceeded $2.1 billion, making it the seventh-largest stablecoin, rapidly expanding since its launch in March and deploying on Ethereum, BNB Chain, and recently on the Tron network. However, according to WLFI's official description, USD1 is primarily targeted at institutional users, and its most significant progress in practical applications has been its selection as the official stablecoin for Abu Dhabi investment firm MGX's $2 billion investment in Binance, marking its first major real-world application case.

USD1 Ecological Cooperation Projects

1. BUILDon
   BUILDon is a MEME related to the cultural construction of BSC, and on May 17, the project officially announced the addition of USD1 trading pairs and has since continued to interact with WLFI on Twitter. On May 22, WLFI announced the purchase of BUILDon token B, subsequently driving its price up over 450%.

2. StakeStone

On May 9, StakeStone announced a partnership with WLFI to provide USD1 users with a full liquidity infrastructure and cross-chain staking yields. On May 22, with Binance listing USD1, the price of STO rose over 20% in a single day.

3. Lista

On May 7, Lista officially announced a strategic partnership with WLFI, stating that the Lista DAO ecosystem would add USD1 to its treasury and also plans to add USD1/lisUSD LP and USD1 as CDP collateral. On May 22, with Binance announcing the listing of USD1, Lista's price rose 37.9% in a single day.

In other cooperative aspects, USD1 is currently collaborating with multiple DeFi protocols such as Venus Protocol, Aster, Meson Finance, and Falcon Finance, supporting USD1 for trading, collateral, or liquidity assets. In terms of custody and liquidity services, BitGo is responsible for custodian of reserve assets, while BitGo Prime provides institutional-level liquidity and trading services. DWF Labs has deployed multiple DeFi liquidity pools for USD1 and subscribed to WLFI tokens with $25 million. Additionally, in the realm of crypto wallets and consumption scenarios, TokenPocket, HOT Wallet, Pundi X, and Umy have integrated USD1 for payments, hotel bookings, and merchant settlements in various Web3 scenarios.

USD1 Compared to Other Competitors

In terms of mechanism design, USD1 does not significantly differ from other mainstream stablecoins like USDT and USDC, all adopting a 1:1 dollar asset reserve model, primarily supported by US Treasury bonds, cash, and other highly liquid assets, ensuring transparency and compliance through third-party custody and regular audits. However, USD1's unique advantage lies in its strong political brand effect behind it. The USD1 issued by WLFI, led by the Trump family, has not only developed rapidly in the early stages but has also been used in the $2 billion investment transaction by Abu Dhabi investment firm MGX in Binance. This rapid growth is primarily attributed to the public influence and political resources of the Trump family, enhancing market confidence in its compliance and credibility. However, it is worth noting that the $TRUMP coin previously launched by Trump experienced significant price volatility, raising market concerns about its stability and long-term value. Such volatility may affect investor confidence in USD1, especially considering the potential impact of political factors on the crypto asset market.

III. Future Development

The GENIUS Act is not only a regulatory framework for stablecoins but also a strategic measure for the United States to promote the issuance of compliant dollar-pegged stablecoins, attract global capital towards US Treasury bonds, and restrict foreign issuers, thereby comprehensively strengthening the international dominance of the digital dollar. These measures help prevent the recurrence of incidents similar to TerraUSD, enhancing the overall security and stability of the crypto market. Against this backdrop, stablecoin projects with strong compliance are expected to gain greater market recognition in the future. For example, stablecoin projects like USD1, which have strong backing, are likely to occupy a more important position in the future crypto ecosystem as subsequent legislation progresses.

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